7. Consider the following individual's Supply curve of labor (). Thewage is W and the quantity of labor supplied is L (note that thiscould be counted as hours per week).$WWWSLLLoNotice that over the wage range Wo to W₁, it is positively sloped.There are two effects in play here. One is the higher 'implicit priceof leisure' (higher wage than before is forgone for any hour ofleisure taken... substitution effect). The other is the increase in'affordability of leisure' (due to higher earnings than before for agiven amount of work effort ... income effect). Which of thefollowing statements is accurate (assuming that leisure is a normalgood)?O The 'implicit price of leisure' effect dominates and leads the worker tooffer more labor service at a higher wage.O The 'affordability of leisure' effect dominates and leads the worker tooffer more labor service at a higher wage.O The 'affordability of leisure' effect dominates and leads the worker tooffer less labor service at a higher wage.O The 'implicit price of leisure' effect dominates and leads the worker tooffer less labor service at a higher wage.O The 'affordability of leisure' effect and the 'implicit price of leisure'effect exactly offset, and the worker offers the same amount of laborservice at the wages Wo and W1.

The leisure effect specifically focuses on how changes in income or wages influence the amount of…

7. Consider the following individual's Supply curve of labor (). The wage is W and the quantity of labor supplied is L (note that this could be counted as hours per week). $W W W 0 - - S Lo L L Notice that over the wage range Wo to W₁, it is positively sloped. There are two effects in play here. One is the higher 'implicit price of leisure' (higher wage than before is forgone for any hour of leisure taken ... substitution effect). The other is the increase in 'affordability of leisure' (due to higher earnings than before for a given amount of work effort... income effect). Which of the following statements is accurate (assuming that leisure is a normal good)?

7. Consider the following individual's Supply curve of labor (). The wage is W and the quantity of labor supplied is L (note that this could be counted as hours per week). $W W W 0 - - S Lo L L Notice that over the wage range Wo to W₁, it is positively sloped. There are two effects in play here. One is the higher 'implicit price of leisure' (higher wage than before is forgone for any hour of leisure taken ... substitution effect). The other is the increase in 'affordability of leisure' (due to higher earnings than before for a given amount of work effort... income effect). Which of the following statements is accurate (assuming that leisure is a normal good)?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

7. Consider the following individual's Supply curve of labor (). The
wage is W and the quantity of labor supplied is L (note that this
could be counted as hours per week).
$W
W
W
S
L
L
Lo
Notice that over the wage range Wo to W₁, it is positively sloped.
There are two effects in play here. One is the higher 'implicit price
of leisure' (higher wage than before is forgone for any hour of
leisure taken... substitution effect). The other is the increase in
'affordability of leisure' (due to higher earnings than before for a
given amount of work effort ... income effect). Which of the
following statements is accurate (assuming that leisure is a normal
good)?
O The 'implicit price of leisure' effect dominates and leads the worker to
offer more labor service at a higher wage.
O The 'affordability of leisure' effect dominates and leads the worker to
offer more labor service at a higher wage.
O The 'affordability of leisure' effect dominates and leads the worker to
offer less labor service at a higher wage.
O The 'implicit price of leisure' effect dominates and leads the worker to
offer less labor service at a higher wage.
O The 'affordability of leisure' effect and the 'implicit price of leisure'
effect exactly offset, and the worker offers the same amount of labor
service at the wages Wo and W1.

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Two individuals, Blair and Anton, derive utility from leisure and from the other goods (OG) they consume. Observing their leisure and OG choices when wage increases, we conclude that Blair has backward-bending labour supply and Anton has upward slopping labour supply. Therefore, Select all that applies a) Leisure is a normal good for Anton but an inferior good for Blair. b) Anton has only an income effect, while Blair has only a substitution effect. O C) Anton's income effect is larger than Blair's income effect, but Anton's substitution effect is smaller than Blair's substitution effect. O d) Anton's substitution effect is larger than his income effect, but Blair's income effect is larger than her substitution effect. O e) Anton's income and substitution effects are negative while Blair's income and substitution effects are positive.
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